TELECOM SERVICES

BY SANDEEP(11MBMA32)

INTRODUCTION
The Indian telecommunications industry is one of the

fastest growing in the world. The industry has witnessed consistent growth during the last year on the back of rollout of newer circles by operators, successful auction of third-generation (3G) and broadband wireless access (BWA) spectrum, network rollout in semi-rural areas and increased focus on the value added services (VAS) market. The number of telecom subscribers, from July to September last year, grew from 671.69 million to 723.28 million, registering a growth of 7.68%. Now, just compare this burgeoning growth rate with a decade-ago figures which stood at 7.3 million cellular subscribers as on June 2002; its a 100 times jump.

0.5 0.45

CALL RATE IN $

0.4
0.35 0.3

Call rate In us$

0.25 0.2 0.15 0.1 0.05

Increasing choice and one of the lowest tariffs in the world have made the cellular services in India an attractive proposition for the average consumer. The segment's subscriber base has grown by over 49% YoY in FY10

CALL RATE IN $

The Indian telecom sector continues to grow at a breakneck speed. It is expected that telecom market may reach to100 $bn by 2015 despite concern factors such as intense competition on back of low tariff structure.
Recently, telecom regulator TRAI released a report on Indian Telecom Services Performance Indicator Report for the period covering July to September 2010,spanning across key parameters in Wireless and Wire-line telecom, Cable TV and Radio Broadcasting services in India.

Graphical representation of total revenue of telecom (service) industry

consumation in US$
35000

30000

R E V I N U E

25000

20000 consumation in US$ 15000

10000

5000

0 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10

Revenue generate form different telecom service in India form year 2003-04 to 2009-10

With changing life style (free flowing )of mid-age Indian, the demand for broadband services has also surged.

Number of broadband user Increase form 9.47 million at the end of June to 10.30 million in Q3 of 2010

MARKET OBSERVATION
Excess demand in form of network congestion.

The change in price is unlikely to affect overall demand, except in areas where the supply constraint does not apply. Since supply rather than demand is the main constraint, it would be useful to focus on increasing the supply of the network. Determining demand is not an easy task in this case as there is an increase in demand and it is not clear if the supply would be increased to meet the demand. Even if supply increases enough to cater to the additional demand, the fact that the demand is increasing makes it difficult to predict the exact nature of demand and demand curve and this is further complicated due to the addition of new services into the market.

DEMAND, SUPPLY AND EQUILIBRIUM ANALYSIS OF TELECOM SERVICE INDUSTRY

The level of output Q0 is the level at which price is equal to marginal cost. Price should give adequate return and allow consumer to operate on demand curve. In India, however, likely to be a capacity constraint and thus the customers are unlikely to be on the demand curve. constrain (i.e. congestion) implies that the supply constraint shown by SS is the operating schedule for the subscribers. Due to, excess demand, change in price will not alter overall demand. Price could increase till demand equal supply. Reduce demand compensate excess demand. Excess demand implies price is high where level of supply is constrain. However, price is not clear because demand curve is not clear.

SIMPLE DEMAND AND COST SITUATION

With congestion, the customer is somewhere on the vertical line SS and not on the demand curve. The excess demand is shown by the horizontal distance between the vertical line SS and the demand curve. Therefore, the actual price is somewhere lower than P1. For making a profit, price make up starts form R . But due constrain starting point is differ form R and is determent by availability of service. Furthermore, the position of this capacity constraint for different types of services (or demand) might be different. Due to excess in demand any change in price will not change level of demand as long as they are on SS. Thus, elasticity of demand same for each service is zero with capacity constrain.

SHIFT IN DEMAND CURVE

 An expansion of capacity is shown by a rightward shift of the vertical line S1S1 to SS. This capacity expansion results in meeting the excess demand of those who were on the waiting list.

The waiting list is shown by the difference between the demand curves D1D1 to D2D2.
To this must be added the increase in demand over time. Adding these would give us the new demand curve as D4D4. If those demanding a link-up with the network are not provided the link-up, then the actual demand at D3D3 will be to the left of D4D4 The difference between D3D3 and D4D4 shows the demand in waiting. Even if the customer is not subject to the supply constraint, it may not be feasible to apply profit theory as long as the desired price is to the right side of the supply constraint. Moreover, when the link to the network is increasing as rapidly as 20 per cent per annum, and excess demand still continues to prevail, it is very difficult to estimate demand characteristics accurately or to use the demand curve for pricing telecom.

SHIFT IN SUPPLY CURVE

If the cost of any factor of productionlabour, raw materials, equipmentdecreases, the quantity that producers are willing (and able) to supply at a given price increases. Producers with lower costs will always be able to supply more of a product at a given price than those with higher costs. Therefore, a decrease in producers' costs will increase the supply.
Conversely, if production costs increase, the quantity supplied at a given price will decrease. Higher costs mean that producers will have to produce less to be able sell a product at a given price. if a producer believes he/ she can get a better price in the future, she will hold off production or delivery and sell when the price has risen.

PRICE ELASTICITY OF DEMAND

CALL RATE IN US$
0.07

0.06

0.05

0.04

0.03

CALL RATE IN US$

0.02

0.01

Elasticity of demand is the degree to which percentage change in market demand.

For example in graph price vs number of minute, ( price change from 0.035 to 0.025 and no. of min changes from 175 to 204.) Elasticity of demand =%change in quantity demand /% change in price=28.57/14.57 For service provider higher the elasticity is better.

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